Debt, Deficits, and Demographics: Why We Can Afford the Social Contract

The emphasis on budget deficits in national policy debates over the last three decades has badly distorted national priorities. There has been an enormous amount of fundamentally confused thinking on budget deficits that has made its way into mainstream political debates. This paper shows that the potential harm from budget deficits has been seriously misrepresented and it is implausible that future generations of workers will see a decline in living standards due to the effects of an aging population. It also shows that the long-term deficit horror stories that appear frequently in public discussions are driven almost entirely by projections of exploding health care costs.